CT companies spared from unemployment tax hikes, for now
Governor Ned Lamont and lawmakers have spared Connecticut businesses a special unemployment tax hike next month — and effectively helped them dodge a January federal business tax hike.
But business advocates say if state officials want to help businesses survive the next economic downturn, the government should do more to help employers replenish a state unemployment trust that has been battered by the coronavirus pandemic. coronavirus.
“While we’ve seen encouraging job growth over the past two months, we’re still struggling,” Eric Gjede, labor, employment and tax specialist for the Connecticut Business and Industry Association .
Temporary shutdown orders and other state restrictions imposed on many Connecticut businesses in 2020 forced layoffs at the worst of the pandemic, business advocates say.
CT borrowed nearly $1 billion to maintain unemployment benefits
“The last thing they need is also to worry about paying unemployment debt that they didn’t cause themselves,” Gjede added, referring to the nearly $1 billion that the state has been borrowing since March 2020 to keep unemployment benefits flowing. At one point in May, more than 390,000 filers were receiving unemployment checks here.
Connecticut funds its unemployment trust with a quarterly business tax. When unemployment is high, Connecticut — and many other states — routinely borrow from the federal government to cover benefits, then pay off that debt using their unemployment tax receipts.
But this debt creates other challenges for businesses.
States that borrow funds are charged for unpaid interest every September — and that cost is often passed on to businesses as well. Connecticut’s interest bill next month is projected at about $8 million, according to the state Department of Labor’s tax unit.
Companies also pay an annual tax to support the Federal Unemployment Trust. And if a state still owes the principal of its unemployment loans in mid-November, it triggers a federal tax hike on that debtor state the following January.
Lamont and the legislature have rejected calls from the CBIA and other groups to use the state’s massive tax reserves to cover that $1 billion corporate debt. Instead, heads of state have devoted the bulk of the $6 billion in surpluses from the past two fiscal years to paying off Connecticut’s massive pension debt.
Lamont, lawmakers avoid immediate corporate tax hikes
But state officials have earmarked $195 million in federal COVID-19 aid to help businesses bolster the unemployment program.
About $30 million has been set aside to cover any special interest assessments the companies would face in September 2022 — and potentially for a few years after that.
Another $165 million was used to reduce unemployment debt. That, coupled with payments the state has already made using corporate tax revenue, reduced the debt from $1 billion to $75 million.
The Legislature and Governor also ordered a one-time regular state unemployment tax cut in early 2023. According to Lamont’s budget office, that’s not only enough to offset the higher federal unemployment that companies will face in January, but also to give a modest cut.
Normal federal tax is 0.6% on the first $7,000 of payroll, to a maximum of $42 for each employee. The planned increase in January would raise the tax to 0.9%, or $63, or an increase of $21 per employee.
The one-time state tax cut, the Lamont administration says, will save businesses about $30 per employee, for a combined federal and state unemployment tax cut of about $9. per employee.
“Governor Lamont and legislative leaders have been strong allies for the business community as employers have worked to recover from the pandemic,” said state Labor Commissioner Dante Bartolomeo. “Governor. Lamont and the legislature allocated federal funding that reduced state taxes, prevented special assessments, and stabilized the trust fund to protect long-term employers.
Chris Collibee, spokesman for the governor’s budget office, noted that Lamont and lawmakers also approved a $660 million tax relief package this year, one of the largest in US history. State.
“Families and businesses benefit directly from these tax cuts, including a reduction in unemployment insurance premiums,” Collibee said. “Our strong economy, low unemployment, and top-quality public schools are among the reasons businesses move, grow, and thrive in our state. Governor Lamont’s commitment to helping our business community is unmatched in our state’s history.
Businesses could face a big tax hike in 2024 unless the state intervenes
Still, because the state’s unemployment trust is depleted and because many economists predict the national economy will struggle through late 2022 and into 2023, Connecticut is likely to borrow more funds. to support unemployment benefits in the future.
Business advocates say the odds of Connecticut being debt-free by Nov. 9 — the deadline that would trigger a federal unemployment tax hike for businesses here — are zero, unless the governor and legislators are no longer intervening than they already have.
More importantly, if Connecticut still owes unemployment debt to Washington by November 2023, federal business taxes here will rise to $84 per employee per year.
Restaurants are among the businesses hardest hit by the pandemic, and Connecticut Restaurant Association President Scott Dolch praised Lamont and lawmakers for taking “real action” to improve the health of the unemployment trust. the state.
“At the same time,” Dolch added, “Connecticut needs to recognize that there is more work to do on this front if we are to protect local small businesses from significant additional costs in the years to come.”
Republican gubernatorial candidate Bob Stefanowski said Connecticut could easily add hundreds of millions of dollars to its unemployment trust to prop up businesses and ensure no federal tax hikes happen in the future. 2022 or later. Connecticut has $3.3 billion in its rainy day fund, and the current year budget projects a general fund surplus of nearly $300 million.
“The governor has several ways to deal with this impending 50% tax hike on employers,” Stefanowski said. “Just take action and knock the balance off. His delay will be another example of Ned Lamont making Connecticut pay for its lack of leadership.
The decision, however, does not rest simply with the governor.
Lamont could not operate the rainy day or surplus fund without legislative approval.
Senator Cathy Osten, D-Sprague, co-chair of the Legislature Appropriations Committee, also supports increased state relief for businesses by strengthening the unemployment trust.
But Osten also said the chances of the legislature going into special session in the late summer or fall of a state election year are extremely slim.
“Everyone is in election mode – not necessarily interested in doing anything else,” she said.
Osten had urged state labor officials not to spend $30 million to cover debt interest charges.
If that money had instead been used to reduce the principal, and if the legislature and the governor had devoted more public funds to the problem, the entire debt might have already been covered.
“We should have just looked at the principal versus anything else,” Osten said.